Solvency of Insurance Undertakings (Mueller-Report) - Eiopa

4.2 Solvency margin4.2.1 Basic principle4.2.1.1 YardsticksGeneral remarksFor life-insurance companies already existing, a significant increase of the solvency requirements isgenerally rejected, a moderate increase, however, finds unlimited support. As to the procedures, thereis agreement that separate yardsticks should be defined for the technical risk and the investment risk,that each yardstick should be multiplied by the rate applicable to it (per cent or per mille) and to addup the individual results cumulatively, as before. The result is the total amount of the solvency margin.Technical riskAll of the delegations take the view that the technical risks (excluding the operating expenses risk)should be evaluated on the basis of the capital at risk, and the operating expenses risk should asbefore be evaluated on the basis of the mathematical provisions. One delegation thinks that the grosspremiums would also be a suitable yardstick. The working group agrees that premiums as well as themathematical provisions have the disadvantage of "penalising" insurance companies who calculateprudently since in both cases a higher index is used as a basis than with imprudently calculatingcompanies. The proposal, however, to apply past administration costs as a yardstick has not beenpursued any further since such a parameter is difficult to define and control.It has been noted, however, that at the moment, standard definitions for both terms, i. e."mathematical provisions" and "risk capital", do not exist yet.The working group discussed at length whether a reference to article 18 of the third life insuranceDirective would be sufficient regarding the mathematical provisions, or if a complete definition of theterm ‘mathematical provisions’ in accordance with the items mentioned in the insurance accountingdirective is necessary. It was finally agreed to understand ‘mathematical provisions’ to mean at leastthe total of the provision for unearned premiums and the life assurance provision referred to inarticles 25 and 27 of the insurance accounting directive.The term ‘risk capital’ of the first life insurance Directive is then understood to mean the differenceoccurring at the respective point in time between the insurance sum becoming due upon realisation ofthe insured event and/ or in pension insurance the cash value of all existing obligations incurred by theundertaking on the one hand, and the available mathematical provisions on the other hand.- 28 -